Project Title
Does a person’s financial situation affect their perception of the economy?
Faculty Mentor(s) Name(s)
Dr. Conaway
Abstract
Starting with Kahneman and Tversky’s (1974) research into cognitive biases and heuristics in the form of behavioral economics, many studies have supported their finding that people have little reason to trust their beliefs and predictions, despite the necessity of believing and predicting. Using panel survey data from the Democracy Fund Voter Study Group, I estimate an ordered probit model designed to examine any potential effect that a personal financial change has on an individual’s outlook on the national economy. Similar studies have provided evidence that people use local circumstances to extrapolate wider conclusions. My results suggest that people do use their own situation as a heuristic for judgements on the national economy. These results necessitate a re-evaluation of rational expectations, and a decrease in the difficulty of obtaining complex economic information.
Does a person’s financial situation affect their perception of the economy?
Starting with Kahneman and Tversky’s (1974) research into cognitive biases and heuristics in the form of behavioral economics, many studies have supported their finding that people have little reason to trust their beliefs and predictions, despite the necessity of believing and predicting. Using panel survey data from the Democracy Fund Voter Study Group, I estimate an ordered probit model designed to examine any potential effect that a personal financial change has on an individual’s outlook on the national economy. Similar studies have provided evidence that people use local circumstances to extrapolate wider conclusions. My results suggest that people do use their own situation as a heuristic for judgements on the national economy. These results necessitate a re-evaluation of rational expectations, and a decrease in the difficulty of obtaining complex economic information.